Nuclear deal given go-ahead

A deal to build Britain's first new nuclear plant in a generation has been announced. The government has been in negotiations with EDF Energy over the Hinkley Point C project in Somerset for more than a year.

Consumers will be protected from possible hikes in operational costs for the first time as part of a new deal to build Britain's first nuclear power station in a generation, the Energy Secretary announced.

Ed Davey said that he had ensured a value for money deal in which consumers would "gain share" but never "pain share" in the event of operational costs changing from current forecasts.

Ed Davey said consumers would "gain share" but never "pain share" in the event of operational costs rising. Credit: Tim Ireland/PA Wire

He told the Commons: "The good news is we have negotiated a gain share for the consumer, the consumer has no pain share.

"If the construction costs go higher, that construction risk is taken by the developer, EDF; if the construction costs are lower the consumer will benefit. That's not happened before and it's a welcome protection for the consumer."

Nuclear industry expert Dave Gardner explained to ITV News why it was necessary to set a "strike price" in advance of a nuclear deal being agreed:

Fixing a strike price is the only way that nuclear investment can work now.

As there are so many subsidies for renewables, and supply companies with their own generation, there is no reliable central clearing price in the wholesale market.

So the agreed electricity market reforms (EMR) establish the principle of contracts for difference (CFDs) that guarantee a strike price.

Then whatever and however the underlying wholesale market develops over the next 35 years, the nuclear plant will either be topped up to that level if the market price is lower or will pay back into the market the excess if the price is higher on an hour by hour basis.

Given the 10-year construction period before any nuclear station starts to generate and earn any revenue, followed by a 20 years payback period, it would otherwise require an heroic assumption about the prices and stability and politics of the market before investing.

This agreement between the Government and EDF is the first example of these electricity market reforms.

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It will lock a generation of consumers into higher energy bills via a strike price that's nearly double the current price of electricity, and it will distort energy policy by displacing newer, cleaner, technologies that are dropping dramatically in price.

With companies like Dong Energy now saying the price of offshore wind will drop so much it will be on par with nuclear by the 2020s, there is little rationale for allowing Hinkley C to proceed.

Giving it the green light when there is no credible plan for dealing with the waste is also unacceptable. David Cameron has said himself that, until the waste issue is sorted, no new investment is possible.

This is yet another Government U-turn which is creating uncertainty for investment in both energy efficiency and renewable energy, which, despite recent headlines, remain the best long-term solution for the consumer, energy security and tackling climate change.

"If we're going to have cleaner energy, a more secure energy, it's not going to come without paying a price," Jeremy Nicholson, of the Energy Intensive Users Group, told Daybreak.

"The one thing we are guaranteed out of this," he went on, " we're going to get secure energy, and that's worth something."

But the Green Party's Baroness Jones said the Hinkley deal was "a disastrous decision".

"At the moment we don't know what to do with the nuclear waste and that means we are giving our children and our grandchildren a huge cost to pick up cleaning up after we've finished with this energy."